Prestige Telephone

What should we learn?

Fixed vs. variable classification
Rent vs. Power
Average cost is not variable cost
Telling if a cost is fully or semi-variable

Avoidable vs. unavoidable costs

Operating Labor vs. Equipment Leases

Traceable vs. Allocated Costs

Sales Promotion vs. Corporate Overhead

Prestige Telephone
What does PDS contribute to PTs profits?
($800-400)*205 per month
Corporate OH ~ $15, 000
Rent & Janitorial charges
Overall, not bad at all!!

PT profit if PDS discontinued?

All unavoidable costs would continue
Leases, maintenance, depreciation, Corp. Services

All contributions would be lost

Prestige Telephone
What should Rowe do?
Keep PDS
Redesign reporting system to show
Fixed and Variable Costs
Contribution Margin
Savings to PTS from subsidized rates
Unavoidable costs to PT being picked up by PDS

Help increase commercial hours

Here alternative c was the best according to many
students.